As we hit the quarter-century mark in agriculture and ag lending, there’s a tale of two economies unfolding. According to Dr. David Kohl, Professor Emeritus in Virginia Tech’s Department of Agriculture and Applied Economics, the U.S. economy is currently holding strong — but the global economy is facing headwinds.
“We have a bifurcated world economy,” Kohl said. “The U.S. is doing well, largely because of deficit spending and high equity markets like stocks and real estate. That drives consumption. But the rest of the world is struggling.”
To better understand spending behavior, Kohl breaks the U.S. economy into three groups: ALICE, HENRY, and HERMAN.
ALICE stands for “Asset Limited, Income Constrained, Employed.” This group used stimulus money but is now facing rising credit card and auto debt. They make up only four percent of national spending.
Next is the HENRY group — “High Earners, Not Rich Yet.” These households earn between $100,000 to $500,000, but many carry heavy university debt. “They’re spending on experiences like trips or concerts,” said Kohl, “but they’re vulnerable if layoffs increase.”
The most influential group is HERMAN—’High Eearners, Rich, Mobile, Appreciated Net Worth.” These households often have $1 to $10 million or more in appreciated assets. “They control nearly half of all consumption,” Kohl said. “When their wealth drops, they spend less — especially if they’re over 60.”
Kohl is also keeping an eye on consumer confidence. “The University of Michigan’s latest index is near its lowest since 1981,” he noted. “That’s a storm cloud.”
Turning to agriculture, Kohl sees the grain sector facing unique pressures. “Exports are the concern,” he said. “One in five dollars in farm income comes from exports. Soybeans rely on 38 to 40 percent exports alone.”
On the other hand, the livestock sector is performing well — for now. “Beef is hotter than a pepper sprout,” Kohl joked. “But if we enter a recession, people trade steaks for ground beef fast.”
Kohl cautions against letting success cloud judgment. “The worst mistakes are made at the top of the cycle,” he said. “Ego can lead to poor decisions.”
To prepare for changing interest rates and inflation, Kohl recommends going back to basics. “Spreadsheets are key,” he said. “Use them to test ‘what if’ scenarios — prices, yields, costs — so you make decisions based on facts, not fear.”
His final advice? “Monitor, Monitor, Monitor,” he stressed. “Don’t just look at your numbers once a year. That’s outdated. Adjust as you go — that’s how successful farms stay strong.”
